International Journal of Real Estate Studies, Volume 8, Number 2

2013

CLIENT INFLUENCE ON PROPERTY VALUATION:

A LITERATURE REVIEW
Kamalahasan Achu
Department of Real Estate, Faculty of Geoinformation and Real Estate,
Universiti Teknologi Malaysia, 81310 UTM Johor Bahru, Malaysia
kamalahasan@utm.my
Abstract
In recent years, client influence on property valuation has been an emerging theme of behavioural research in the
real estate discipline. Studies on valuers decision-making behaviour imply that client influence is an important
source of judgemental bias. Academic interest in this area, however, has evolved from the task of identifying the
existence of client pressure to studies that explain the mechanism of client influence in relation to specific valuation
types. This paper offers a thorough review of the existing studies on client influence with the aim to underline future
research areas. The existing literature is organised and discussed under three topics: (1) client pressure evidence; (2)
influences related to client characteristics; and (3) influences related to specific valuation purposes. The need for
better data and methodological solutions is a major constraint and it is expected that future studies in this area would
utilise both quantitative and qualitative approaches in order to explain the extent and effect of this phenomenon on
valuation. The fact remains that there is much more to discover about client-valuer relationship in the workplace and
more importantly its role in the valuation accuracy and variation debate.
Keywords: Real estate valuations, client influence, ethics, behavioural sciences.

1.0

INTRODUCTION

Property valuations play an important role in

many aspects of business and corporate
decision-making. The role of valuations in the
commercial and residential lending sector is selfexplanatory in that they act as a risk control
measure in the capital adequacy system
maintained by financial institutions. Basel
(1988) and the relevant EU Directives have
further emphasised the significance of valuations
in the secured lending sector. Valuations also
facilitate transactions in the direct and indirect
investment markets considering real estates
unique characteristics compared to other
financial assets. Business entities need to value
their properties regularly for bookkeeping whilst
institutional investors seek valuations to assess
the performance of their investment fund.
Although valuations are required for other
individual and statutory purposes, it is the
estimation of market value which is highly
relevant to the decision-making activities
mentioned above.

Considering the underlying needs for valuation

expertise and the judgemental character of
property valuations, it is just natural that
academics and practitioners in the field have
immersed themselves in the debate of accuracy
of these valuations. The benchmark for accuracy
is the achieved sale prices in the market and
evidences to date suggest that valuations are
generally not accurate estimates of market
values1 (Hager and Lord 1985; Hutchinson et
al., 1996; Matysiak and Wang 1995). The
possible explanations for this apparent
inaccuracy and variations between valuations are
the lagging effect (Webb, 1994), serial
correlation (Ibbotson and Siegel, 1984; Geltner,
1993) and estimation errors (Geltner et al., 1994;
Zotzour, 1988). There is also a wealth of
evidence on valuers susceptibility to
behavioural influences such as heuristics and
1

In Malaysia, Asmah (2006) compared government

valuers valuations and private valuers valuations of
commercial properties for insurance and stamp duty
purposes and found out that the variation between
these valuations is less than 5%. Moreover, seventy
to seventy five percent of the variation between these
valuations is less than 10%.

biases, which may have some impact on the

outcome of a valuation (Diaz, 1990a, 1990b;
Diaz, et al., 2002; Gallimore, 1996; Gallimore,
and Wolverton, 1997). The key issue here,
however, is the inherent degree of uncertainty in
valuation and the extent of variation between
valuations.
Recent studies have also raised issues relating to
principal-agent problems,
especially the
potential of individual motives and influences
within the valuation process that could affect the
quality of the valuation outcome. In fact,
evidence suggests that there is a strong
possibility that variances in value conclusions
are possibly contributed by client influences
(Roberts and Roberts, 1991). This has to be
viewed in the context of client-valuer
relationship where the competitiveness of the
industry and the nature of professional service
often make way for close interaction between
valuers and their clients. Although such close
interaction between valuers and their clients is
part of the valuation process and may be
necessary to improve the accuracy of valuation
output, there are reasons to believe that client
meetings and other forms of communication do
provide opportunities for clients to influence
values. Thus, it is not surprising to know that
valuation process can be affected by clients and
valuers need to be aware of moral hazard
problems that may arise as a result of their
continuous drive to serve their valued clients.
Moreover, the client-valuer relationship may be
far more complicated and subtle than one
suggested by professional standards and codes of
ethics. This situation in many ways resembles
the issue of auditor independence which has
generated a large body of empirical evidence in
the accountancy literature (Beattie et al., 1999;
Lee and Gu, 1998; Iyer and Rama, 2004; Lu,
2006; Simunic, 1984; Ashbaugh et al., 2003)2.

Similar evidence of client influence instances have

been investigated in relation to securities analyst in
the investment sector (see Siconolfi, 1992; Dugar and
Nathan, 1995; Lin and McNichols, 1998; Carleton et
al., 1998; Michaely and Womack, 1999; OBrien et
al., 2005)

Given the relevance of the issue to the ongoing

valuation accuracy and variation debate, this
paper reviews the literature on client influence in
the valuation process. The review is organised
into three themes: (1) client pressure and
influence evidence; (2) influences related to
client characteristics; and (3) influences related
to specific valuation purposes. A summary table
is provided at the end the review whilst section 3
concludes the paper with a brief discussion on
avenues for further studies.
2.0

REVIEW OF THE LITERATURE

There are a number of studies which have

investigated the nature of client influences in
residential and commercial property valuations.
The earlier studies revealed the existence of
client pressure whilst recent studies focussed
more on the ways in which this pressure may
have been imposed on valuers and valuation.
These are discussed under the following themes:
2.1

Evidence
influence

of client

pressure

and

It is common to find the term influence is used

interchangeably with terms such as pressure
(Smolen and Hambleton, 1997; Kinnard, Lenk,
and Worzala, 1997; Worzala, Lenk and Kinnard,
1998)
and feedback (Wolverton and
Gallimore, 1999; Gallimore and Wolverton,
2000; Crosby et al., 2010) in the literature.
These different terms, however, were intended to
refer to the same issue; clients specific actions
to change property valuation outcomes. How
this is actually accomplished by clients may
have justified the use of different terms. For
example, pressurising valuers may be just one of
the ways clients use to try to influence a
valuation. Pressure may come in many forms,
from withholding payment to the threat of not
giving future instructions to the valuation firm.
The same applies to client feedback, which can
have indirect pressure on valuers opinion. On
the other hand, influence appears to mean the
end result or the actual effect; that is whether the
valuation has actually been biased or diverged as
a result of these pressures. Therefore, the
expression influence represents a broader and
more appropriate concept than pressure. The

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 25

use of the term influence also broadens the

focus of client influence on the valuation process
rather than just the final outcome.
As one of the pioneering studies in the area of
client pressure, Smolen and Hambleton (1997)
conducted a questionnaire survey to gather
empirical support on four interrelated client
pressure issues: appraisers3 experience with
client pressure, source of the pressure, type of
threat or coercion received and awareness of
fellow appraisers complying with client
pressure. Their 292 valuer respondents were
mainly involved in the preparation of residential
appraisal for mortgage financing. Responding to
one of the three questions regarding experience
with client pressure, nearly 80% of respondents
agreed that appraisers were pressured by clients
specifically to alter market values. In addition,
about 65% of respondents generally believed
that clients in their market area are prone to
impose pressure on or influence appraisers
market value estimates. Some 82% of the same
respondents were also aware of the practice of
their fellow appraisers complying with clients
demands to give revised valuations. Similar
evidence of client pressure was also provided by
Kinnard, Lenk, and Worzala, (1997) and
Worzala, Lenk and Kinnard, (1998) in their
respective survey with commercial and
residential appraisers. In Kinnard, Lenk, and
Worzala, (1997) for instance, over 90% of
commercial appraiser respondents indicated that
they had experienced such pressure, reiterating
the view that client pressure is a serious threat to
independent value judgement. Similar concerns
were also revealed in a survey conducted with
valuers in Singapore, Taiwan and Nigeria (Yu,
2002; Amidu and Aluko, 2007a; Chen and Yu,
2009).
In terms of type of threat or coercion imposed by
clients, it is clear that reducing number of
instructions and removal from the approved
appraiser list are the obvious ones (Smolen and
Hambleton, 1997). These direct threats are not
negligible as failure to secure instructions may
3

Valuers in the United States are known as appraisers

and hence the terms valuer and appraiser are used
interchangeably in this paper.

undermine the financial viability of the appraisal

firm. Nearly 14% of respondents from the study,
however, indicated that nothing would happen,
I would still get business. Threats of physical
harm were also a possibility as reported in
Rushmore (1993:358) who himself had
experienced such pressure during a hotel
appraisal case. Two further studies, Wolverton
and Gallimore (1999) and Gallimore and
Wolverton (2000) suggest that client feedback
during valuation may have a strong influence on
how valuers view their role in the mortgage
valuation task from one that provides
independent value opinion to one that just
validates pending sales price. The earlier study
of the two, Wolverton and Gallimore (1999) was
conducted in the U.S. whilst Gallimore and
Wolverton (2000) surveyed the same issue in the
context of valuers in the U.K. The first part of
their study investigated valuers self-assessment
on their role in the mortgage valuation and this
was contrasted with their view about their
clients requirement in the mortgage valuation.
The respondents were asked to rate in Likert
format from 1 (disagree) to 7 (agree) on the
statement that the role of the appraiser when
doing mortgage appraisal work, (is) to validate
pending sale price. In the second question, the
respondents were instructed to rate their lenderclients objective in the mortgage valuation from
1 (concerned about objectivity) to 7 (concerned
about supporting the sale price). The mean
scores for these measures indicated that
appraisers were more in favour of providing an
objective opinion of value whilst their clients
were more interested in obtaining appraisals that
support the sale price.
A significant behaviour modification was also
noted among the UK valuers when one-third of
the respondents agreed to the statement that their
objective in mortgage valuation is to validate the
pending sale price. This dilution from objective
opinion of value to one that just conforms to
pending sale price could be a direct result of
client influence. These responses were also
analysed to identify whether there was any
significant relationship between valuers
perception and their exposure to different type of
feedbacks. In order to ascertain any type of
relationship, the authors developed ten variable

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 26

or feedback scenarios and grouped them into

three types of feedback: environmental
perception feedback, coercive feedback and
positive
reinforcement
feedback.
These
feedbacks were tested in relation to a simulated
lending case which reflected a situation where
the market value is too low to support the loan
amount. An example of feedbacks classified as
environmental perception feed back was client
asks me if I am comfortable with the value. The
first two feedback types were expected to
influence appraisers to become pending sale
price validators whilst the positive reinforcement
comments were meant to reflect non-pressure
scenarios.
The most selected type of feedback among the
UK valuers came from the positive enforcement
category (client does not contact me regarding
the value) whilst the US study revealed that the
two most selected feedbacks were in the form of
environmental perception feedback (client asks
me to consider other comparable sales and
client asks me if I am comfortable with the
value). Although the underlying nature of
feedbacks was mostly in the form of
environmental or positive feedbacks, analysis
revealed that coercive feedbacks cannot be
ignored. In the Wolverton and Gallimore (1999),
US study, for example, the third most prevalent
type of feedback was client pressures me to
increase the appraised value. The same
feedback came sixth in the UK study.
More importantly, at least in the US context
there was a strong positive relationship between
feedback types and valuer perception about their
role and their view about client objective in the
lending valuation. This suggests appraisers in
the US, in particular, commercial appraisers
were more likely to confirm to pending sale
price if subjected to constant environmental
feedbacks and coercive feedbacks. On the other
hand, UK valuers perception of the mortgage
valuation objective appears to be only weakly
correlated to their client feedback exposure. It
was also worth noting that UK respondents
specialised in residential valuation stand out
from the rest of the sample in their view about
mortgage valuation objective and their views
were strongly positively correlated with their

perceptions about client objective. In other

words, valuers specialised in residential property
valuation were possibly more susceptible to
validate pending sale price than the commercial
property valuers. This may be due to the smaller
profit margin and greater competition for
valuation cases in residential property valuation
compared to commercial property valuation.
Moreover, the loan to value ratio (LTV) offered
to residential properties is higher than to loans
secured on commercial properties.
Wolverton (2000) incorporated these feedback
constructs into a regression model and
concluded that environmental and coercive
feedbacks were indeed influential to price
validation behaviour. The preliminary structural
model of client influence from Wolverton (2000)
also revealed the impact of two key factors on
valuer role perception: client type (mortgage
broker clients or relocation company clients) and
valuation firm ownership. Client feedback
pressure, however, has very little effect on
valuers judgement in Nigeria (Amidu, Aluko
and Hansz, 2008). This study extended the work
of Wolverton and Gallimore (1999) and
Gallimore and Wolverton (2000) on client
feedback pressure to Nigerian estate surveyors
and valuers. Data collection for the study was
based on a similar questionnaire design used in
the two preceding studies. The results of the
study are comparable to the results of the UK
study but differ with the US results which
indicate a significant positive correlation
between types of feedback and role perception
of appraisers. It is not clear whether the
similarities with the UK valuers were
attributable to colonial legacy or other factors
considering the limitation of the survey method.
2.2

Influences
related
characteristics

to

client

The current literature on client influence has

helped to identify the types of client and their
characteristics that lead to overt pressure on
valuers. It is also understandable that the focus
of the earlier studies was primarily on lending
valuations considering the role of valuation as
risk control measure in the mortgage lending
sector. In Smolen and Hambleton (1997) survey,

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 27

three types of client were specifically identified

as the main source of pressure for valuers. They
were clients from mortgage banks, commercial
banks and Savings and Loans. Clearly, lenders
were identified as the main source of pressure in
valuations for mortgage financing. This applies
to both residential and commercial valuations
(Kinnard, Lenk and Worzala, 1997; Worzala,
Lenk and Kinnard, 1998). More significantly, in
Levy and Schuck (1999), respondents indicated
bankers as pessimistic whilst developer clients
as the most difficult group of clients to manage,
suggesting the former for being responsible for
downward pressure on value and the latter for
upward value requests understandably for
funding purposes. However, fund managers
were described as being conservative and
measured in their influence on value.
Prior studies show that client size and the
requested value adjustment are important in
explaining client influence. For instance,
Kinnard, Lenk and Worzala (1997) tested two
scenarios which might put pressure on
commercial appraisers to change their value
judgement. The two scenarios were the fear of
losing clients (client size) and the size of the
value adjustment requested by clients. As such,
this is one of the earliest works that utilised
behavioural methodology in studying the effect
of client pressure on commercial appraisal
judgement. The purpose was primarily to gather
evidence as to whether appraisers were
influenced by the fear of losing clients as well as
the size of the value adjustment requested by
clients when making value judgement. These
two factors were also tested jointly to find out
the overall effect on value decisions. Their
analysis indicates that only client size had
significant relationship with appraisers decision
to revise their value. In other words, the bigger
the client, the more likely are appraisers to
modify their initial value. The largest number of
respondents who chose to revise their value was
from the large client/small adjustment scenario,
suggesting this is an acceptable practice to
safeguard business relationship as well as future
instructions.

In contrast, another study with residential

appraisers found that neither client size nor the
level of value adjustment influenced the
appraisers decisions (Worzala, Lenk and
Kinnard, 1998). The logistic regression model of
this study indicates that neither the individual
variables nor the combined variables actually
influenced the decision of participating
appraisers. In other words, for residential
appraisers, client size and the magnitude of
value change requested by the lender client do
not have any significant effect or pressure in
their decision to choose one of the options. One
plausible explanation to this finding compared
with commercial appraisals is that valuers may
not differentiate clients according to size in
residential property valuations. A significant
20% of respondents whose decisions were not
included in the analysis commented that they
would choose neither to revise nor to stick to
their original value estimate in the given
scenario. This can be considered more
encouraging to the appraisal profession as
respondents acknowledge the need to include
up-to-date information in the value analysis as
well to make sure the new information can be
verified satisfactorily. The fact that a large
number of respondents chose not to respond or
suggested a third option that allowed the
appraiser to wait and verify the data explains the
possibility that there may be some other factors
other than client size and value adjustment could
have influenced the completed response. The
outcome of the study was generally supportive
of the client pressure claims in residential
appraisals although the impact of this pressure
on the actual valuation judgement needs further
empirical testing.
A similar study by Amidu and Aluko (2007a) in
Nigeria also shows that neither the size of client
nor the amount of adjustment requested by
clients affect valuers decision to revise a
valuation. The effect of client size, value
adjustment requested by clients and the
interaction of these two variables were tested in
a logistic regression model using respondents
answers to a hypothetical valuation scenario.
Although the alternative hypothesis was not
supported in the study, about 60% of the
surveyed respondents believe that valuers were

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 28

actually
manipulating
valuations
to
accommodate for client requests whereas 70% of
the survey participants had experienced such
pressure recently. It should be noted that the
pressure of losing a big client may not be
adequately represented in a questionnaire-based
scenario compared with the real-world
experience. In addition, sophistication of the
client was also pointed out as another significant
factor in the Levy and Schucks (1999) client
influence model. Sophistication may arise
either as a result of client size or type of
valuation assignment.

might avoid unnecessary pressure from clients as

this gives more confidence on the reported
value. Based on these findings and the first ten
non-technical factors mentioned by the valuers,
the authors have hypothesised a preliminary
client influence model consisting of four
contributing factors: valuer and valuation firm
characteristics, client characteristics, external
characteristics and valuation characteristics. The
types of influence have also been incorporated
into this model. Top of this themes are the
client-specific characteristics, purpose of
valuations and the defensible value mechanism.

Their findings were based on in-depth interviews

with New Zealand registered valuers. One of the
findings of this research was the way in which
sophisticated clients manipulate information
passed on to valuers during the valuation
process. For instance, this can be noted when
clients emphasising subject propertys positive
attributes, withholding negative information as
well as the provision of supplementary market
information. Clearly, they tend to emphasise
subject propertys positive attributes more than
its negative elements and willing to supply
confidential information in circumstances where
they believe some of the information has not
been given full consideration by valuers. In fact,
sophisticated clients are more experienced in
dealing with valuers and some are familiar with
the valuation techniques themselves. This puts
those clients in a better position to try to argue
with valuers. Unsophisticated clients such as
developers, on the other hand, were described as
more direct in their approach as their most
common threat was not paying the valuation fee
(Levy and Schuck, 1999). Hence, valuers should
be prepared to deal with different types of
clients.

Levy and Schucks recent interviews with

sophisticated clients have further emphasised
the ways in which clients could actually
influence, not only the valuation outcome but
also the whole valuation process itself (Levy and
Schuck, 2005). The study was conducted
primarily to provide more insights about clientvaluer relationship from the perspective of the
sophisticated clients. The selected respondents
were mainly involved in managing large
porfolios of property investment funds in New
Zealand. A number of issues related to client
incentives to influence valuations, types of
power available to the client and opportunities
clients have to use this power were gathered
from the semi-structured interviews. For
instance, the interviewed clients stated that their
main incentives to influence valuation results
were underlined by the needs for market
credibility and accurate and realistic valuations.
This suggests not all client influences are meant
to bias reported values from market values. On
hindsight, they also agreed that there were
instances where the incentive to influence
valuation may be based on personal gains
especially with regards to performance-based
remuneration. In terms of exerting power on
valuers, procedural power also has the ability
to create opportunities for the client to indirectly
influence valuation outcomes. This refers to the
choice of valuer, the terms of the contract and
the instruction process. Another factor reiterated
in the study was the definition of market value
and the inherent subjectivity of valuations,
which further created openings for clients to
exert power over the valuer.

Levy and Schuck (1999) also highlighted some

other client and valuer-related factors including
the age and experience of valuers as well as the
personality of valuers. It seems older and
experienced valuers were subject to more
influence, as they tended to provide more
subjective judgement than less experienced
valuers who are likely to search for more
evidence to support their valuation. Further,
valuers access to better and timely information

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 29

Figure 1 shows the updated client influence

model, which incorporates all the factors and
subfactors identified from client and valuer
interviews. Amidu and Aluko (2007b) analysed
the perception of Nigerian valuers on a number
of client influence factors identified by Levy and
Schuck (1998; 2005). Their mean analysis of
five-point Likert scale shows that only integrity
of valuer or valuation firm, importance of the
valuation outcome to the client and client size
were rated highly by respondents. Amidu and
Aluko (2007b)s further analysis to identify
whether there is a relationship between size of
valuation firm, the amount of experience and
education of valuers and their perception of
client influence factors revealed that there is no
statistical association between these factors.
Chen and Yu (2009) compared client influence
on valuation in Taiwan and Singapore. One of
the main conclusions from their questionnaire
survey shows that different market structures,
development background and business practices
may have an impact on the factors causing client
influence. Chen and Yu (2009) argue that these
differences appear to explain the degree and
extent of client influence problem in both
countries. For example, valuers in Taiwan tend
to believe that the individual valuer
characteristics are more important than the
valuation firm whilst their counterparts in
Singapore give more emphasis to firm related
factors. It suggests that clients in Taiwan seem
to appoint valuers based on their experience with
the particular valuer whereas clients in
Singapore tend to engage the firm rather than the
individual. This could be due to the different
development of valuation industry in both
countries (Chen and Yu, 2009). Similarly,
valuers in Singapore believe that firms offering
valuation services as part of other multi-services
are better equipped to resist client influence
while their Taiwanese counterparts feel that the
larger and more established valuation firms are
better able to resist client influence.

2.3

Influences Related
Valuation Purposes

To

Specific

Levy and Schuck (1999) also found that

valuation for rent reviews, purchase/sale and
matrimonial purposes were more vulnerable to
client influence. However, it is still not clear as
to the mechanism by which pressure is applied
on valuers in these circumstances and valuers
reaction to it. Therefore, understanding the
valuation process from its instruction stage to
final report may provide a better platform in
explaining the influences from clients. Crosby,
Hughes and Murdoch (2004) in a survey of
commercial valuers and lenders, explained
logically the involvement of stakeholders such
as borrowers and brokers and how these
stakeholders may possibly influence decisions
on valuation for secured lending. The results
were based on interviews with lender and valuer
focus groups and further substantiated by
questionnaire surveys with the same target
groups. The lender and valuer respondents were
mainly from the UK based banks and valuation
firms respectively. Part of their research also
included the analysis of past valuation
negligence cases. It is clear that borrowers and
brokers are involved in the selection of the
valuer.
The analysis on negligence cases informed us
that some only involved in recommending the
valuer whilst there is also a case where the
instruction to value was not received from the
lender (Alliance Trust Bank Ltd v Edward
Symmons & Partners 1994). The interview with
valuers, however, showed that having a preexisting relationship with either borrowers or
brokers is part of the business practice and what
is more important is being on the lenders list of
approved valuers. According to the valuers
interviewed this is what actually determines the
valuer selection. It seems the valuers focus
group was less worried about the involvement of
borrowers compared to the involvement of
brokers in the selection process.

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Page 30

Figure 1: Client influence model

Source: Levy and Schuck (2005)

In particular, concerns were raised about

influential brokers who were keen to use desktop
valuations as a means to select the right
valuer. As argued by Crosby, Hughes and
Murdoch (2004, p4), if this was how instructions
were being secured by valuers then there is
strong pressure upon them to confirm the
indicated value. Indeed, established relationship
with clients and over-dependence on one
particular type of client for instructions are the
essential ingredients for overt pressure on
valuers. When addressing the same issue with
lenders, they suggested that they would always
prefer to deal directly with the valuer, even one
initially selected by the borrower. The fact that it
was prepared for borrower or broker may not be
significant during the consideration. This can be
taken to mean that as long as the valuer
recommended by broker or borrower is on the
list, there is no reason for lenders not to consider
the request or to reject a completed valuation
report prepared by any of their panel valuers.

Research has also shown that the panel valuers

are selected on various criteria, most notably on
the basis of the reputation of the firm and the
individual valuer (Crosby et al., 1997).
On hindsight, this suggests the lender would
always contact the panel valuer for clarifications
if needed. It is not clear whether lenders are
aware of the pre-existing relationship between
valuers and borrowers/brokers when the
instruction is sent out. It can be implied that
knowing the respective banks panel valuers and
their value opinion with regards to the same
property will make life easier for borrowers and
brokers in their attempt to make valuation
reports accepted by banks. The analysis on
questionnaire survey responses confirmed the
interview findings. 46% of the respondents
indicated that the valuer was seldom picked by
the borrower or broker whilst 27% of the
respondents said the valuer was never chosen by
the borrower or broker. Only 14% said that the

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 31

valuer was selected by the borrower or broker

half of the time (Crosby, Hughes and Murdoch,
2004). Although it is difficult to infer that the
valuer selection and/or the eventual instruction
by third parties would actually lead to a biased
value opinion, this practice does ask questions
about the impartiality of valuation as well as the
legitimacy of this type of valuation instruction
for secured lending. Nevertheless, it is worth
pointing out that valuers in the study were more
concerned about the involvement of borrowers
and brokers in the valuer selection than the
lenders (Crosby, Hughes and Murdoch, 2004,
p8).
In addition, findings from the same research
indicate that purchase price information had less
influence on valuers judgement. In fact, valuers
were criticised for not giving adequate
recognition to this information in a number of
negligence cases (e.g. Banque Bruxelles
Lambert SA v Eagle Star Insurance Co Ltd
(1994); Interallianz Finanz AG v Independent
Insurance Co Ltd (1997)). Therefore, in contrary
to what has been suggested in behavioural
studies (Gallimore and Wolverton, 1997; Diaz
and Hansz, 2001), the problem was not overreliance on the purchase price information but
rather under-reliance on it during valuation. This
conforms to valuers view that they make use of
purchase price information mainly to facilitate
loan transaction and in capturing the price
movements during the transaction period
(Crosby, Hughes and Murdoch, 2004, p12).
From the analysis of negligence cases, there are
two particular cases in which a lender and a
borrower were involved in influencing the final
valuation outcome (Crosby, Hughes and
Murdoch, 2004). The influence on the valuation
figure understandably happened in the process of
completing the valuation report and when the
information about value is communicated to
client before the final report. There is clear
evidence from this study and prior work by Levy
and Schuck (1999) that sending draft valuation
report to client had been a common practice in
the work environment.

Crosby, Hughes and Murdoch (2004) reported

that there was a strong opinion among valuers
interviewed that any discussion relating to draft
valuation were not concerned about the value.
The valuers (94%) and lenders (81%) also
suggested that the valuation figure seldom or
never changed during draft valuation meetings
and therefore never a problem for them. It is
debatable, however, whether the clients were
more interested in improving the presentation of
the report and whether this practice actually
enhances the quality of the valuation as a whole.
Having said that, the valuers agreed that using a
range of values to justify their judgement in so
far as to allow the borrower to obtain the amount
required as an acceptable practice (Crosby,
Hughes and Murdoch, 2004). But, how
significant this adjustment of value to a
particular loan transaction and as a result how
this might change lenders perception about
valuers degree of tolerance is subject to further
investigation. More importantly, it can be seen
that draft valuation meetings and the use of
value distribution by valuers may facilitate client
expectations to be incorporated into the
valuation outcome.
The same concerns were also raised in relation
to property portfolio valuations (Baum, et al
2000). Property portfolio valuations in the UK,
for example, are mainly undertaken on the
monthly and quarterly basis to determine the
market value of property investments managed
by property funds. These valuations at the
individual portfolios are integral to the
construction of Investment Property Databank
(IPD) index, which is used to benchmark the
performance of different property funds in the
UK. Hence, fund managers have incentives to
influence these periodic valuations in order to
out-perform the market and their competitors.
For instance, Baum et al. (2000) conducted
semi-structured interviews with over 30 property
owners, fund managers and investment valuers
of major property funds in the UK and identified
some evidence of influence of fund managers on
investment property valuations. This research, in
particular, further highlights how draft valuation
meetings could be used to change the valuation
outcome. The fund managers opinion on this
issue tend to suggest that these meetings are no

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 32

more than an opportunity for clients and valuers

to exchange information, which will enable the
valuer to derive a fully informed valuation
figure (Baum et al., 2000, p32). This refers to
the fact that portfolio managers are in a better
position to supply valuers with more up-to-date
information on rent reviews and lease renewals
(Baum et al., 2000). The fund managers also
revealed the need to inform valuers about the
market sentiment together with other factual
information and how this might help in their
decision-making during the meeting. However,
they conceded that the information sharing could
be selective on the basis of purchase or sale
decision to be taken by the management. Levy
and Schuck (1999) also uncovered this practice
in New Zealand.
The results overall indicate that there are
elements of overt influence in the process in
particular from fund managers considering their
interest in the performance of portfolio assets.
The intention is therefore to portray an upward
trend in values and the draft valuation meetings
may be used to impose this intention on the
valuer. In contrast, the valuer interviewees
insisted that they are well-equipped to deflect
any pressure from their clients to increase the
draft valuation unless their argument is
evidence-based. There was also an indication
from the interviews that the smaller and lessdiversified firms because of their economic
dependence on the specific client may put them
in a weaker position to negotiate during draft
valuation meetings. The research also suggests
that about 20-50% of valuations would normally
be challenged at the draft valuation meeting and
a 50% out of this proportion are more likely to
change in value (Baum et al., 2000).
Moreover, it is also self-evident that
performance-based bonuses and the use of
December valuation by IPD in the UK may
explain some of the efforts by fund managers to
influence valuers. Again, this is debatable in the
case of large firms. A closer look at the ways in
which these monthly and end of year valuations
are being produced also reveals that valuations
are far from objective and independent. There is
no doubt that this culture of discussing draft
valuation reports could compromise an

independent valuation advice in return for an

arguably accurate valuation judgement. This
may mislead investors whose decision to enter
into or withdraw from a particular real estate
investment pool depends on the accuracy of the
valuation figures. However, it is encouraging to
note that most of the influence issues raised by
the study have been reaffirmed by the Carsberg
Working Party in their recommendations
(Recommendations 3-12 and Recommendation
16) to the RICS (RICS, 2002) for which the later
responded with new rules for the Red Book.
Considering the wider application of Red Book
throughout the world, perhaps it is time to
measure valuers reaction to these new measures
in the context of Malaysian valuation market.
In another related study, Crosby et al. (2010)
show that client influence could be one possible
explanation for the differences in the capital
return falls among different type of funds in the
UK during the second half of year 2007. In this
research, it was found that open ended funds
return fell far more than pension funds and
insurance companies even after controlling for
differences in portfolio structures. In this study,
Crosby et al. (2010) compared the hypothetical
return series of three types of funds and the
actual capital values with the overall IPD capital
growth between year 2004 and 2008. The
hypothetical return series for funds were
estimated using IPD Portfolio Analysis Service
(PAS) quarterly returns and market capital
weight in each fund type. The comparison
between hypothetical and actual return series
shows that open ended funds actual capital
values fell 3.5% more than the benchmark
capital values. Further exploratory statistical
tests confirmed the significance of these higher
capital value drops compared to pension funds
and insurance companies even though the
regression model does raise some specification
issues. Crosby et al. (2010) suggest that the
downward pressure on capital values by clients
at the time might be related to the redemption
obligation encountered by the open ended funds.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 33

Table 1: Summary of Client Influence Articles

Article
Smolen and Hambleton
(1997)

Data/Sample
US licensed and
certified appraisers
n= 292
Response rate= 37%

Research design
Mail questionnairedescriptive statistics

Summary of findings
i). Nearly 80% of the respondents claim that appraisers
are pressured by clients specifically to alter their values
ii) About one-third of the respondents revealed that
their clients insisted them to modify values recently
iii). About 65% of the respondents generally believe that
clients in their market area are prone to impose
pressure on or influence appraisers market value estimates.
vi). The type threats or coercion used by clients are in the form
decreasing number of assignments and removal from approved
appraiser list.
viii). 81.5% of the respondents suspect their fellow appraisers in the
market complying with clients demands to give favourable
valuations.
vii). About 14% of the respondents indicated that they would still get
business regardless of previous value.

Kinnard, Lenk and Worzala

(1997)

US commercial appraisers
n= 666
Response rate= 32%

Case scenarios and mail

questionnaire logistic regression model

Worzala, Lenk and Kinnard

(1998)

US residential appraisers
n= 482
Response rate= 31%

Case scenarios and mail

questionnaire logistic regression model

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

i). Only client size factor actually had any significant relationship
with appraisers decision to revise their value.
ii). The largest number of respondents who chose to revise their
value judgement was from large client/small adjustment scenario.
iii). Client requested value adjustment did not have any effect
on valuer behaviour.
i). Neither individual variables (client size and requested adjustment) nor the
combined variables influenced the decision of
participating appraisers.
ii). Exit questionnaire analysis revealed that more than 80% of
respondents perceive the fear of losing clients was either not
important or having a neutral influence on their decision-making.

Page 34

Table 1 (continued)
Article
Yu, Shi-Ming (2002)

Data/Sample
Singapore valuers
n= 34
Response rate= 72%

Research design
Case scenarios and mail
questionnaire logistic regression model

Wolverton and Gallimore

(1999)

US general appraisers and

certified residential appraisers
n= 377
Response rate= 32%

Mail questionnairecorrelation-OLS regression,

factor analysis

Gallimore and Wolverton

(2000)

UK general practice
Surveyors
n= 511
Response rate= 25%

Mail questionnairecorrelation-OLS regression,

factor analysis

Summary of findings
i). 85% of the respondents agreed with the statement that valuers
are sometimes pressured by clients to modify their values.
ii). Private individual category was identified as one of the main
sources of client pressure.
iii). Nearly all the respondents indicated their awareness of other
valuers complying with clients' demands to modify values.
iv). Neither client size nor the amount of adjustment has a
significant effect on the decision to alter values.

i). Appraisers perceive clients are more concerned about obtaining an

appraisal that supports the sale price.
ii). In general, appraisers do not perceive their role as being to
validate sale prices.
iii). Change in role perception is evident when appraisers are
exposed to above average levels of environmental perception
feedback and coercive feedback from mortgage clients. This effect is
greater for commercial appraisers.

i). Results indicate a great deal of variance in how appraisers perceive

their role in mortgage valuations.
ii). Exposure to client feedback does not alter valuers own
principle on mortgage valuation objective although analysis
indicates a strong link between feedback experienced
from clients and valuers self-perception on what they should be doing.
iii). The underlying nature of feedbacks are mostly in the form of
environmental or positive feedbacks rather than coercive.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

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Table 1 (continued)
Article
Levy and Schuck (1999)

Data/Sample
New Zealand Registered
Valuers

Research design
In-depth interviews

Summary of findings
i). Generally indicates clients role in influencing reported values.
ii). Sophistication of the client pointed out as
having its own role in the influence process.
iii). Sophisticated clients influences are in the form of emphasizing
subject propertys positive attributes, withholding negative
information as well as the provision of supplementary
market information.
iv). The practice of submitting a draft report as contributing to the
unnecessary pressure to revise reported value or information.
v). Defensible value criteria gives clients an opportunity to impose
their preferred value either to the low end or to the high end of the
range.
vi). Respondents agreed that the practice of valuers revising his/her
opinion within the range of defensible values as an acceptable
practice.
vii). Respondents also believe that an individuals ethical decision is
less dictated by the ethical culture of a firm.
viii).Valuer and valuation firm characteristics, client characteristics,
external characteristics and valuation characteristics are among
the four main factors incorporated in the preliminary model.
viv). Influences are grouped into client-specific characteristics,
purpose of valuations and the defensible value mechanism.

Levy and Schuck (2005)

New Zealand
Property executives

In-depth interviews

i). The main incentives for clients to influence valuation results are
underlined by the needs for market credibility and accurate and
realistic valuations.
ii). Procedural power has the ability to create opportunities
for clients to indirectly influence valuation outcomes. This refers to the
choice of valuer, the terms of the contract and the
instruction process.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

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Table 1 (continued)
Article

Data/Sample

Research design

Summary of findings

Crosby, Hughes and

Murdoch (2004)

31 valuation negligence cases

6 UK commercial valuers
6 UK commercial lenders

Case analysis,
Focus group interviews,
Mail questionnaire

i). The involvement of brokers and borrowers in the valuer selection

is a clear evidence of influence in the secured lending process.
ii). Valuers are aware of the importance of maintaining professional
integrity and at the same time admit they need the help of borrowers
and brokers in completing loan deals.
iii). There is also some evidence of influence during the draft
valuation stage.
iv) Lenders are flexible in terms of valuer selection and do not rigid
on the idea of borrowers to dictate the selection.
v) According to valuers, there are occasional attempts to influence them but
that pressure has no effect on the outcome.
vi) Lenders are comfortable with valuer panel system.
vii). Only two negligence cases show evidence of borrower
involvement in altering values before final report.

Baum, Crosby, Gallimore,

McAllister and Gray
(2000)

UK property owners, fund

managers and investment
Valuers
n=30

In-depth interviews

i). Draft valuation meeting provides opportunities for clients to

manipulate values.
ii). There is evidence that the majority of changes made during the
draft valuation stage were upwards.
iii). End of year bonuses and other incentives may impose pressure
on valuers to give favourable figures.
iv). Change of valuers or the appointment of new fund managers
has had an impact on portfolio value.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

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Table 1 (continued)
Article

Data/Sample

Research design

Summary of findings

Amidu and Aluko (2007a)

Estate surveying and

Valuation firms in Nigeria
n= 88

Mail questionnaire with

experimental scenariosdescriptive statistics
logistic regression model

i). Nearly 80% of the respondents indicated that clients

seek to influence valuers to alter their valuation outcome.
ii). 60% of the respondents have experience of some valuers
in the local complying with clients demand to modify
valuation.
iii). Nearly 70% of respondents have experience of clients insisting
them to modify values recently.
iv). The logistic regression model indicates that neither client size
nor the amount of adjustment has a significant effect on the
valuers decision to alter the original value estimate.

Crosby et al., (2010)

IPD performance data of

funds from June 2007 to
n = 45

IPD Portfolio Analysis

Service -

i). Unlisted open-ended funds experienced sharper drops in capital

values than other fund types in the last quarter of 2007.

Hypothetical return series

ii). Unlisted open-ended funds capital values fell 3.5% more than
the benchmark capital values compared to pension funds
and insurance companies.
iii). Redemption obligation of this type of funds might have resulted
in high pressure from clients to undervalue property assets.

Questionnaire surveyfrequency analysis,

cross tabulation,
chi-square

i). Three client influencing factors ranked highly by respondents

are the integrity of valuer or valuation firm, importance of
valuation outcome to client and client size.
ii). There was no statistical relationship between the size of the firm,
the amount of experience and education of respondents and their
perception on their client influencing factors.

Amidu and Aluko (2007b)

Estate surveying and

Valuation firms in Nigeria
n= 88

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

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Table 1 (continued)
Article

Data/Sample

Research design

Summary of findings

Chen and Yu (2009)

Licensed valuers in
Singapore and Taiwan
Singapore: n= 31
Taiwan: n= 32

Questionnaire surveydescriptive statistics,

F-test

i). Valuers in Taiwan suggest that individual characteristics

of valuers are more important than the firms characteristics
whilst Singapore clients tend to engage the firm rather than
any particular valuer.
ii). Valuers in Taiwan feel that larger and established firms are
better able to resist client pressure but Singapore valuers
suggest that multi-service firms which provide larger service
consultancy are better at resisting client pressure.
iii). Valuers in Singapore feel that long term clients and clients who
are more familiar with the firms and more knowledgeable about
a property market tend to exert stronger pressure compared to
others. Taiwanese valuers think that clients with more
information and client who are investors tend to exert most

pressure.
iv). Compared to Taiwanese valuers, Singaporean valuers do not think the
promise of future jobs is a big source of pressure.
v). Taiwanese valuers feel that valuation for mortgage purposes and
properties with clear market information are the two factors that
likely to have potential client influence rather than other valuation
purposes and the amount of valuation fees whilst valuers in
Singapore feel that clients who pay higher fees, including those for
asset pricing purposes are also strong reasons for client influence.
vi). It is interesting to note that the Taiwanese valuers do not think that
rules and regulations would help to deter client pressure compared to
their Singaporean counterparts.
vii). More than 80% of the valuers surveyed in both countries agreed that
with greater access to information valuers would have greater
confidence in their valuation. Both samples also strongly agree that
properties with clear market information have a smaller margin for
value adjustment and that transparent transaction data decrease the
chances of clients having an influence on value.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 39

3.0

CONCLUSION

The existing research on client influence has

clearly shown that pressures and influences
from clients can indeed challenge the
impartiality of the value opinion provided by
valuers. Any attempt to compromise the
requirement to produce an objective and
independent value opinion can affect public
trust in the profession. This is a worrying
sign considering the effects of coercion and
threats in the determination of the actual
value in question. Research has revealed
that the threats from clients are not only in
the form of coercive verbal threats but also
can be hidden and indirect during clientvaluer communication. The effect on the
valuer behaviour can also be subtle, which
may have led to the reformulation of the
valuation objective from an objective
opinion to the one that validates sale price.
At worse, values were adjusted to
accommodate client needs. Client feedback
has also been shown to have some effect on
the valuer decision-making in the future
unrelated assignments.
Apart from these client pressure means,
studies did shed some light on the
characteristics of clients and the nature of
influences that they might bring into the
valuation
process.
The
size
and
sophistication of clients seem to be two
crucial factors in determining the
vulnerability of a valuer to client influence.
There are instances where small adjustments
to value were administered with regards to
big clients. Figure 2 summarises these
factors and illustrates the importance of
understanding the issue in the context of
valuer characteristics and different valuation
purposes. Many of the factors presented in
the model warrant further empirical testing
and this has to be complemented by data and
research expertise.

However, there is still much work to be done

in the issue of identifying the actual clients
or stakeholders relating to other purposes of
valuation. In the context of valuation for
secured lending, for instance, this may not
be a problem as the client can be either a
lender or a borrower. In some cases, the
client could be a broker, who is acting on
behalf of the borrower as shown in Figure 3.
In periodic valuations for property
performance measurement the instructing
party can be the owner or the fund manager.
However, the instructing party may not be
too concerned about the objectivity of the
reported value as compared to the lenders
and shareholders who actually rely on these
figures to make sound investment decisions.
The
conflicting
interests
between
stakeholders and the role of valuer are
shown in Figure 4. Therefore, future
research needs to look into the involvement
of various other clients, from individuals to
large corporations with regards to the
purpose of valuation and work environment.
For instance, commercial appraisals for
institutional clients can involve very
complex situations and usually demand a
different level of effort from the valuer
(Miles, 1984).
It is also clear that the use of defensible
value criteria by valuers and the culture of
sending draft valuation allow more room for
judgement as well as renegotiation with
client. There is no doubt that the use of
value range allows more room for client
pressure. There is a need to understand the
benefits of this meeting and the pressures
that it brings to the valuation process. Also
pertinent here is the negotiation skills when
dealing
with
sophisticated
and
unsophisticated clients and the reaction of
valuers to client feedbacks during this kind
of meeting. Indeed, there is a need to study
the minutes of draft valuation meetings and
other informal ways by which value is
actually being communicated to clients
before the final report.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 40

NATURE OF
VALUER AND THE
VALUATION FIRM
commercial/residential
small/big firm
age/experience
integrity of the valuer and
the valuation firm

Valuation opinion
definition of value
shopping
industry competitiveness
/ service diversification

access to
information /
perception of the
industry

NATURE OF
FEEDBACK
coercive feedback
positive feedback
environmental
feedback

PROCEDURAL
INFLUENCE
court cases
regulatory framework
selection and instruction
of the valuer
draft valuation

valuer reaction /
strategy?
overt pressure /
behavioural
influence

CLIENT
INFLUENCE
ON THE
VALUATION
OUTCOME

CLIENT TYPE
sophisticated/
unsophisticated
individual clients /
institutions

information power
expert power

stakeholders?
conflicting interests
valuation process /
reporting

VALUATION
PURPOSES
Secured lending
valuations for third
party use
one-off / periodic
High fee/low fee

value adjustment
coercive power/
reward power

CLIENT SIZE
small/big client
income contribution
client relationship

Figure 2:
Summary of factors affecting client influence on the
valuation outcome

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 41

It can be generalised from the literature that

there are possibly four stages at which
pressure may be imposed on valuers: preinstruction phase, instruction phase,
valuation phase and draft valuation phase.
The amount of interference may differ
according to type of client, purpose of
valuation and the value of the property.
Logically, lenders are expected to have more
authority at the pre-instruction and
instruction phases. It is not overly surprising
that much of the discussion at the earlier
phases will be about the value of the
property than the technicalities of the final
report. This is mainly because the clients
usually have the upper hand during initial
stages of the instruction as compared to
during the valuation or draft valuation phase.
It is also understood that the practice of
opinion shopping happens at the preinstruction phase. Therefore, at least for
valuations carried out for financing purpose,
the initial stages warrant more scrutiny than
the later stages. This is where the panel
valuer list plays a defining role in the
selection of the valuer and the valuation
firm. Although empirical evidences are
available as to how the panel selection is
rationalised, more insights are needed in
terms of who actually finalises the selection
and on what basis. This issue has to be
researched in the light of other purposes of
valuation mainly to find out the mechanism
by which valuers are selected for certain
assignments. The outcome might clear any
doubts about the use of opinion shopping or
conflicts of interest in the selection and
instruction of the valuer.
In view of portfolio valuations and other
valuations
prepared
for
in-house
consultations client involvement could be
more intense during the valuation phase and
the draft valuation phase compared to during
the initial stages. It is reasonable to believe
that these clients are big clients and
normally contribute a significant income to
the valuation firm. As a result, the preexisting relationship between the particular
client and the valuer will be stronger than
the lender-valuer relationship and puts more

pressure on the valuer to comply with client

expectation. The type of coercion and
influence may not be direct and at times
done in a professional way as described in
the literature. It will be more useful to know
the methods and strategies used by clients to
convince value change other than the direct
threats to business and introducing new
evidence in the last minute. In a survey
involving pension fund managers in the
U.S., for example, it was reported that not
only were there major differences in
valuations prepared for commingled real
estate fund (CREF) asset managers but also
evidence of manager influence on critical
assumptions of the definition of value
(Gibson, 1989). Asset valuations carried out
for the purpose of REITs listing on the stock
market were also subject to strong influence
from clients (Chen and Yu, 2009).
More insights are necessary relating to what
kind of information is supplied during the
valuation and draft valuation stages and how
this information is used to justify an increase
or decrease in value prior to reporting. This
will be important in explaining the role of
client in the valuation process and the black
box of valuers decision-making. Moreover,
the analysis of minutes of these meetings
may help in discovering whether there is
enough evidence of bias in the process that
could impair the integrity of valuers and
their professional judgement. This is
possible considering the recent obligation on
valuers to keep record of any discussions
with clients during the course of undertaking
valuation under the RICS Valuation
Standard 6.11 (RICS, 2012). In short, there
is still much more to discover about client
influence on valuations and its success will
depend on data availability and method of
analysis.

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 42

Instruction from the borrower

BORROWER

BROKER

VALUER

LENDER

PANEL
VALUERS

Instruction from the lender

Figure 3: The relationship between stakeholders in a typical lending scenario

Page 43
International Journal of Real Estate Studies, Volume 8, Number 2, 2013

THE CLIENT

Conflicting economic incentives between

a principal and agent

draft valuation report/

VALUER
meetings

THIRD PARTY

Difference of motives between the instructing

party and the real users of the valuation report

DIRECTOR
FUND MANAGER
OWNER

Maximising manager wealth

EXTERNAL
VALUER

INDEPENDENT
VALUER

TRUSTEES
SHAREHOLDERS
LENDERS

Maximising the value of the firm

IN-HOUSE
VALUER

Figure 4: The conflicting interests of different set of stakeholders in property portfolio valuation

International Journal of Real Estate Studies, Volume 8, Number 2, 2013

Page 44

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